Tesco urged to slash prices

Tesco has been urged to cut its prices by a leading duo of City analysts.

David McCarthy and Andrew Porteous of Evolution Securities, said that a major repositioning on cost by new chief executive Phil Clarke would “set Tesco up for the next decade”.

They believe the UK’s biggest supermarket can afford a price war more than the competition, costing it around 15% of profits – compared with the 60% it would cost its nearest rival J Sainsbury.

Such a price war would, in turn, slow store openings by other retailers, enabling Tesco to slow up on its expansion front and avoid what the analysts called “Tescopoly”.

The duo said: “Tesco should reposition on UK pricing. Rolling industry trends forward sees Tesco lose strategic position, puts returns under pressure and sees the competition gain strength. A major repositioning would cost Tesco proportionately less than the competition, would hurt competitors’ cash flows more and would bring an end to industry over-expansion.”

The retailer saw sales slow at Christmas and it posted a modest 0.6% increase in like-for-like (LFL) sales. In comparison, Sainsbury’s said it had enjoyed one of its best-ever festive sales periods, which saw it jump ahead of Asda as the nation’s second biggest supermarket.